What is value-based pricing?

Where has public policy gone in the last few years?  Popular policies include move towards more bundled payments, the creation of accountable care organizations, additional funding for comparative effectiveness research (CER), evidence-based medicine (EBM) and value-based purchasing programs that link payments to various quality metrics.

With health care costs rising, payers are looking to decrease spending in all areas including pharamceuticals.  Payers have implemented a number of policies to reduce health care spending for pharmaceuticals.  These include:

• Utilization Management: pharmacy formulary coverage, prior authorization, quantity limits, and step therapy
• Network Design: physician contracting and prescription medication distribution
• Benefit Design: tiered consumer cost-sharing and payment limits

As reported in a recent Deloitte issue brief, many of these policies are already pervasive. Eighty eight percent of individuals were in plans with had tiered cost sharing.  Pharmacy benefit managers (PBMs) often negotiate with pharmaceutical companies over price and tier location.

Another innovation is value-based pricing for pharmaceuticals.  VBP is begin to be adopted throughout the developed world.

• Australian Pharmaceutical Benefits Pricing Authority (PBPA): now more frequently suggesting alternative pricing agreements in negotiations with pharma companies; As of June 2010, there were already 90 alternative pricing agreements in place
• Germany: recently changed its reimbursement system to a value-based pricing system
• UK:  will engage in universal value-based pricing. The existing Pharmaceutical  Pricing Regulation Scheme (PPRS) will be replaced with value-based pricing for branded medicines sold to the National Health Service (NHS)

What components are needed for a VBP system?

• Features: Molecule, mechanism of action
• Benefits: Efficacy, safety, risk-benefit analysis, cost/QALY
• Value: cost-effectiveness, burden of illness, quality of life, consumer satisfaction, convenience

Source:

• Deloitte.  “Value-based pricing for pharmaceuticals: Implications of the shift from volume to value” Issue Brief, 2012.